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Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies

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  • Alexander Zimper

    (Department of Economics, University of Pretoria)

Abstract

The financial sector of emerging economies in Africa is characterized by a non-competitive banking sector which dominates any direct participation of agents in asset markets. Based on a variant of Diamond and Dybvig's (1983) model of financial intermediation, we formally explain both stylized facts through market inexperience of agents in emerging economies. While experienced agents correctly predict future market clearing equilibrium prices, inexperienced agents are ignorant about future market equilibria. As a consequence, a monopolistic banking sector can exploit these agents because their only outside option is an autarkic investment project.

Suggested Citation

  • Alexander Zimper, 2013. "Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies," Working Papers 201334, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201334
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    More about this item

    Keywords

    Emerging Economies; Demand Deposit Contract; Asset Market; Asymmetric Information;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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